AAII Sentiment Survey: Neutral Sentiment Falls to a Seven-Month Low

The percentage of individual investors describing their short-term outlook for the stock market as “neutral” is at a seven-month low. The latest AAII Sentiment Survey also shows both optimism and pessimism rising above their respective historical averages.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 1.7 percentage points to 39.6%. The historical average is 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 6.8 percentage points to 27.3%. Neutral sentiment was last lower on March 8, 2017 (23.5%). The drop ends a 25-week streak of readings above the historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 5.1 percentage points to 33.0%. This is a seven-week high. The historical average is 30.5%.

Optimism is at or above its historical average for just the seventh time this year. This is also the first time both bullish and bearish sentiment are above their respective historical averages on the same week since February 22, 2017.

There has been a general improvement in optimism since Labor Day. The average bullish sentiment reading during the eight-week period ended yesterday is 37.1%. Over the previous eight months, optimism averaged 33.0%. The improvement has occurred as the stocks have rebounded off of their August lows.

Political drama in Washington remains at the forefront of many individual investors’ minds. (Many are skeptical about the prospects of tax reform being passed.) Valuations are also playing a role, creating concern among some about stocks being overpriced and potentially leading to a correction. Similarly, there are concerns about the current lack of volatility being followed by a downward price move. Some individual investors, however, are encouraged by the continuing economic and earnings growth as well as the market’s upward momentum.